Intercontinental: Going Up

The View Is Good
Intercontinental Hotels Group (IHG ) (IHG), the chain with the most rooms worldwide, is getting even bigger and could be one of the best China plays for the 2008 Beijing Olympics. The British hotelier has 65 new properties in its pipeline, more than all U.S. innkeepers combined. In China, where it already has 57 hotels, IHG is headed for 50% growth by 2008. Of the 130,000 rooms planned, 40% are under construction. IHG plans to have 125 hotels in China by the end of 2008. China represents "tremendous opportunities," says Harry Curtis of JPMorgan Chase (JPM ), which has done business with IHG. He rates the stock, now at 17.94, "overweight." He sees a gain of 20% to 50% in 12 to 18 months. And it's cheap, he notes, with a price-earnings ratio of 21. Marriott (MAR ), Hilton (HLT ), and Starwood (HOT ) have p-e ratios of 25 to 29. IHG has more than 3,650 hotels, including Holiday Inn and Crowne Plaza, with 540,000 guest rooms in 100 countries. IHG's bookings and prices for 2006's second half are up from a year ago, with "revenues per available room" expected to grow by 12% in Asia Pacific, 9% in the Americas, and 5% in the Middle East, says Curtis. He expects 2006 earnings of 74 cents a share and 96 cents in 2007. Anna Barnfather of Jefferies International (JEF ) in London sees a "positive outlook" and rates IHG a "buy." She upped her 2007 estimates after IHG delivered solid first half results, particularly in the U.S. The stock, she adds, "remains attractive relative to its U.S. peers."

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By Gene G. Marcial

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